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Loans for Kamyab Pakistan Programme - Inside Financial Markets

Loans for Kamyab Pakistan Programme

 The Federal Cabinet has decided to provide a government guarantee of loans for Kamyab Pakistan Programme (KPP) from the banks/ DFIs/Pakistan Mortgage Refinance Companies (PMRCs) for at 50 percent instead of 100 per cent, after the Governor State Bank of Pakistan (SBP) proposed revision of the original proposal.

According to official documents, on July 16, 2021, Finance Division requested the ECC to approve Kamyab Pakistan Programme along with features. It also proposed to grant exemption of rule 3(2) of Cash Management and Treasury Single Account Rules 2020 for allowing direct debit authority to the SBP beyond inevitable circumstances.

During the ensuing discussion, the Finance Minister/ Chairman ECC. Shaukat Tarin clarified that the programme was a milestone initiative of the present government. Its distinctive feature was uplift of the low income groups by empowering them through provision of small loans by the micro finance institutions. Such small loans shall be provided to individuals in the sectors like housing and agriculture. It was also stated that target market of this facility shall be the households as identified by the “Ehsas Program”. He also stated that the overall debt servicing burden should be limited up to 33 percent of the total income of the borrower for the housing sector whereas it should be 50 percent for non-housing loans. It was also suggested that the limit of Rs150,000 should be considered per crop.

Governor SBP, Dr Reza Baqir, suggested that 100 percent government guarantee for loans from the banks/ DFIs/Pakistan Mortgage Refinance Companies (PMRCs) may be revisited and may be kept at 50 percent in order to ensure sustainability of the credit market. Moreover, for allowing direct debit, approval of the SECP would be required.

Governor SBP further stated that the projections/ timeframe for the whole period of the scheme i.e. 22 years, should be presented as well. The ECC agreed to the suggestion for reduction of the guarantee limit for banks/ DFIs/PMRCs at 50 percent of “first loss portfolio basis” instead of 100 percent and approval of the SECP for MFIs was also agreed. This would entail an increase of 0.50 percent in applicable interest for banks. However, regarding the timeframe for projections, the Finance Division responded that the projection for twenty-two years is already entailed with the proposal. The Finance Minister observed that the programme will be reviewed after three years to assess performance, viability and sustainability.

After detailed discussion, the ECC approved summary of Kamyab Pakistan Programme with the stipulation that the government guarantee for the loans from the banks/ DFIs/Pakistan Mortgage Refinance Companies (PMRCs) shall be kept at 50 percent, instead of 100 percent, and approval of the SECP shall be obtained for allowing direct debit in case of MFIs/RSPs/HFCs. An increase of 0.50 percent in bank interest rate was allowed in view of reduced coverage of Government guarantee on “first loss portfolio basis”.

The Federal Cabinet, in its meeting held on July 27, 2021 ratified the decision of the ECC taken on July 16, 2021.

Syed Zaki Hussain

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